New Stock Preview| Intense competition in mobile phone recycling, Shangback Technology has been losing nearly 300 million in three and a half years.

Over the past decade, China's mobile phone shipments have always been at the forefront globally. According to Frost & Sullivan data, in 2023, China's mobile phone shipments reached 289 million units, an increase of 6.3% compared to the previous year. In the future, the shipment of new mobile phones in China is expected to grow at a compound annual growth rate of about 3.4% from 2023 to 2028, reaching approximately 341 million units in 2028. It is worth noting that the upgrading of new mobile phones will drive an increase in consumer demand for handling old or unused phones, leading to growth in China's second-hand consumer electronics trading market and phone recycling market. In terms of revenue from trading in old phones for new ones, the market size in China is expected to increase from 4 billion yuan in 2019 to 14.2 billion yuan in 2023, with a compound annual growth rate of approximately 37.3%, and is expected to further increase to approximately 56.5 billion yuan by 2028. Against this background, mobile phone recycling service provider Flashback Technology Co., Ltd. (referred to as Flashback Technology) submitted its listing application to the main board of the Hong Kong Stock Exchange on September 17, with China Renaissance Capital as its exclusive sponsor. China's Third Largest Mobile Phone Recycling Service Provider According to the prospectus, Flashback Technology is a Chinese company engaged in providing aftermarket trading services for consumer electronics, focusing on the mobile phone recycling service market. According to Frost & Sullivan data, based on the total revenue from consumer-side recycling transactions in 2023, the company is the largest provider of offline phone recycling services that exchange old phones for new ones in China, and the third largest mobile phone recycling service provider in China, with market shares of approximately 7.4% and 1.4% respectively. According to Frost & Sullivan data, in 2023, based on the sales amount of phones recycled from consumers, the company is also the third largest mobile phone recycling service provider in China. Flashback Technology mainly obtains the supply of used consumer electronics through trade-ins at its upstream purchasing partners' offline and/or online stores using the Flashback Recycle system. Individual consumers (final suppliers) trade in their used consumer electronics as part of the payment for new consumer electronics at a discounted price. The company then processes the purchased used consumer electronics at its testing and operations center using proprietary testing, grading, and pricing technologies, and efficiently sells these electronic products to various buyers in the second-hand consumer electronics market through the company's online platform Flashback Store and its self-operated stores on multiple third-party e-commerce platforms. With a solid position in the Chinese mobile phone recycling service market and an understanding of the demand and preferences of buyers in the second-hand consumer electronics market, Flashback Technology also engages in corporate recycling and offline sales to batch process consumer electronics to meet the business needs of its upstream business partners and customers. In addition, the company provides value-added and after-sales services to participants in the upstream and downstream value chains. Flashback Technology has established and developed two core brands, namely "Flashback Recycle" and "Flashback Store." "Flashback Recycle" is the company's main brand for offline recycling business, where it recycles used consumer electronics from individual consumers through upstream purchasing partners. "Flashback Store" is the company's main brand for selling purchased used consumer electronics to customers on its own online platform and/or on third-party e-commerce platforms. High Selling Expenses, Nearly 3 Billion Losses in Three and a Half Years In terms of performance, Flashback Technology achieved revenues of approximately 750 million yuan, 919 million yuan, 1.158 billion yuan, and 577 million yuan for the six months ending on June 30, 2021, 2022, 2023, and 2024 respectively. During the same period, the annual losses were 48.708 million yuan, 99.084 million yuan, 98.268 million yuan, and 40.126 million yuan. According to the prospectus, the losses as of December 31, 2021, 2022, and 2023 were mainly due to the company's sales costs increasing from approximately 688 million yuan to approximately 1.08 billion yuan. The increase in sales costs was mainly due to the increase in the company's purchase volume due to continuous business growth, the expansion of supply channels through the establishment of new strategic partnerships with more mainstream consumer electronics brands, the continuous updates and upgrades of new phone models leading to higher purchase costs than older models, and intensifying competition in the mobile phone recycling service market overall which increased the company's overall procurement costs. Flashback Technology pointed out that the procurement of used consumer electronics products has incurred and will continue to incur significant costs, and if it fails to resell these products in a timely manner or manage the company's working capital and cash flow or obtain additional financing in the future, it may have a significant adverse impact on the company's business, operating performance, and financial condition. It is noted that high sales costs have put pressure on Flashback Technology's gross profit margin, with the company's comprehensive gross profit margin for the first half of 2024 being 4.5%, a decrease of 2.3 percentage points compared to the same period last year. Among them, the gross profit margin for selling second-hand phones was 3.8%, a decrease of 3.3 percentage points year-on-year. Chinese Mobile Phone Recycling Market Expected to Stable Growth In this context, Flashback Technology needs to expand its business scale continuously to improve profitability. The company stated in its prospectus that it plans to use part of the IPO funds to further strengthen strategic cooperation with its upstream purchasing partners to consolidate its current market position in China's offline phone recycling market and expand its trading services to Hong Kong and other Southeast Asian countries. According to the Frost & Sullivan report, the Chinese mobile phone recycling market still has significant room for growth. In terms of revenue from trading in old phones for new ones, the market in China rapidly increased from 4 billion yuan in 2019 to 14.2 billion yuan in 2023, with a compound annual growth rate of approximately 37.3%, and is expected to further increase to approximately 56.5 billion yuan by 2028. In terms of revenue from idle phone recycling, the statistics increased from approximately 18.8 billion yuan in 2019 to approximately 48.7 billion in 2023, and is expected to further increase to approximately 132.9 billion yuan by 2028. In terms of revenue channel breakdown, offline channels remain the main channel for trading in old phones for new ones, accounting for approximately 77% of the total market size in 2023. Offline revenue increased from 2019.The annual revenue is expected to increase from approximately 33 billion RMB in 2023 to approximately 108 billion RMB in 2023, with a compound annual growth rate of approximately 34.5%. In the future, with the trend of increasing volume of old-for-new mobile phone recycling through offline channels, the market is expected to continue to rise, reaching approximately 42.7 billion RMB by 2028, with a compound annual growth rate of approximately 31.6% from 2023 to 2028.It is worth noting that as the scale of the mobile phone recycling market expands, industry competition is also intensifying. According to a report by Frost & Sullivan, the top five market participants hold a 16.4% market share in China's offline trade-in market for old phones in 2023, indicating that the industry competition is still far from being settled. In its prospectus, Flashback Technology pointed out that the company's revenue growth rate decreased by about 11.3% in the first half of 2024. The decrease is mainly attributed to the increasingly intense competition in the Chinese market and the challenging macroeconomic conditions, leading to a reduction in the number of second-hand phones collected and subsequently sold by the company. Flashback Technology also stated that the severe macroeconomic environment and intense competition in the industry where the company operates may restrict the company's supplies, increase operating costs and capital expenditures, and result in a decrease in revenue and gross profit margins. Failure to compete with existing and potential competitors could have a significant impact on the company's business, operation performance, and financial condition.